If you want to become a successful income property investor but are prone to impatience, you may want to steer clear of new condos and budget-busting renos, says the host of HGTV’s Income Property.
Licensed contractor Scott McGillivray is an authority on the subject not just because he has his own show, now in its eighth season, but also because he’s a well-versed investor with hundreds of properties to his name.
“When you are buying an investment property, it is a little bit different than just looking for a home,” says McGillivray, 35, whose show was expanded to an hour last year to devote more time to helping homeowners find the right property in the first place.
“For me, going to an hour allowed me to answer some of those questions. We do the home tours and point out things that I think most conventional people shopping for a property wouldn’t particularly (consider).”
McGillivray checks out three to five properties per show and spends about a 1½ hours at each location, where he will do a cursory inspection and renovation estimate. He’ll look for costly concerns – like foundation and structural issues and mould and mildew.
He says the toughest task during the house hunt is keeping his clients’ emotions in check and focusing on the income potential.
“If I know it’s just going to be way out of control with the budget, it’s not going to make sense,” he says. “The whole idea of what we do is to help people afford their homes and to help people make money in real estate. If I notice right away there is no profitability to be made, then we are looking at the wrong house … I don’t want to see them over-invest.”
The income potential creates a “safety net” that protects the homeowner in case of unforeseen things such as market fluctuation, he says. “Our average homeowner is having more than half of their mortgage costs covered by the rental income coming in. So even if you are approved for a $500,000 home, and we buy you a $500,000 home, you are making payments as if it was a $200,000 home.”
So where should you put your money? Eight or nine years ago, he may have shown buyers a condo, but now he is steering them away from that market and toward singlefamily dwellings.
“For investment purposes, the prices on condos have risen quite significantly, unproportionally actually, in most markets.” He says that when he did invest in condos they were usually older. Now, with the explosion of new builds, featuring elaborate designs and amenities, comes condo fees that are going through the roof, sometimes doubling within the first few years.
“Your profitability in terms of investment is just paid out in condo fees,” says McGillivray. “There isn’t a lot of control. I prefer to be in the driver’s seat, which is why … I believe in investing in freehold properties.”
For those looking to buy a property under market value, he says the best time to buy is now. According to seasonally adjusted figures, prices are reduced by five to seven per cent between October and December.
Once the rent cheques start to flow in, homeowners should expect to build wealth gradually, he says. If they want to make a quick buck they’re in the wrong business.
“It’s not just about the $800 a month; the tenants are paying down the mortgage, the property is going up in value, there are other elements at play here that take time,” he says. “Real estate is a get rich slow process. If you try to get rich quick, you are going to get burnt.”
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